Business risks

The following are risks that could significantly affect investors’ judgment about the Group’s businesses

Natural disasters etc.

The Group’s businesses, primarily the Transportation business, operate in certain areas, mainly the east of Tokyo and the northwest of Chiba Prefecture. These businesses are vulnerable to the risk of a serious epidemic or pandemic. Such a scenario could potentially damage the group’s performance and financial health. For example, authorities may urge people to stay at home, which would stymie travel demand and undercut revenue. Additionally, we may face added costs if we need to take measures to prevent infection among staff and customers. Also, natural disasters, such as major earthquakes, typhoons, and heavy snowfalls, terrorist attacks against the Group’s facilities, other incidents and accidents, restriction in the supply of electricity in the areas could affect our customers and employees or damage our non-current assets or inventories. These events could cause a decrease in earnings due to a decline in consumer sentiment and an increase in costs for restoration and improvement, which could affect the operating results and financial position of the Group.

Declining birth rate and aging population

The birth rate is declining and the population is aging in Japan, and the working-age population is expected to decline. Although the pace of decline in the areas where the Group is operating is slower than the national average, a fall in demand for the products and services provided by the Group or difficulty in securing and cultivating human resources that will be caused by social and economic changes, including the declining population and structural changes, could cause a fall in earnings or an increase in management costs, which in turn will affect the operating results of the Group.

International situations

Narita International Airport is located in the area of operations of the Group, and our Transportation business is highly dependent on users of the airport. Major terrorist attacks, international conflicts, and epidemics could thus cause a significant decline in users of the airport, which in turn could cause a fall in earnings. Significant rises in the prices of oil and raw materials due to trends in markets and exchange rates could cause rises in electricity charges and in costs for sourcing products and raw materials, which could affect the operating results of the Group.

Legal restraints

The core business of the Group is the Transportation business, including the railway and buss businesses. The construction and maintenance of facilities and the setting of fares and charges in these businesses are regulated by the Railway Business Act, the Road Transportation Act, and other laws and regulations. The other businesses of the Group are also regulated by applicable laws and regulations. New laws and regulations or significant changes in the application criteria could restrict corporate activities or raise management costs for compliance with laws and regulations, which could affect the operating results of the Group.
The Company takes every precaution with respect to quality control for the products and services provided by the Company Group. However, in cases where flaws arise in its construction properties for sale, a major accident occurs with products handled by the Company, or a serious chargeable incident takes place in its transport business, the operating results of the Company Group may be affected.
We work to maintain and enhance our internal control system. However, inappropriate financial reports caused by significant deficiencies in internal control or improper reactions to antisocial forces could cause our social credibility to be destroyed.

System failure

The Group uses information systems in such operations as settlement processing, train operation, and seat reservation. Significant failures in relevant hardware, software, or networks due to natural disasters, human error, or sabotage could disrupt operations or cause a decline in the Group’s social credibility due to delays in disclosure. If restoration or improvement requires a long time, earnings could decline, or costs could increase, which could affect the operating results of the Group.

Rise in interest rates

The Group’s interest-bearing debt outstanding at the end of FY2020 totaled 373.1 billion yen. We will continue to curb interest-paying debt. We are working to fix interest rates as far as possible to curb risks associated with rising interest rates. A significant rise in interest rates, however, could affect the operating results of the Group.

Information leakage

Each business of the Group has confidential information that we obtain in the course of business, including personal information. We have developed an information security policy, personal information protection policy, and rules to prevent insider trading and are strengthening our system to manage confidential information through education for officers and employees and the creation of manuals. However, the unauthorized disclosure of confidential information due to accidents or other reasons could result in claims for damages or a decline in our social credibility, which in turn could affect the operating results of the Group.

Other risks

A relative decline in demand from passengers at Narita International Airport following the further functional enhancement of Haneda Airport could affect the operating results of the Group. Inappropriate customer service or failure to disclose information properly at the correct time could cause a decline in the Group’s social credibility. Unexpected accidents or incidents at important alliance partners or business partners or deterioration in their management could disrupt operations of the Group. Declines in performance at affiliates could affect the operating results of the Group.

The above are the major risks that are expected in association with the Group’s operations on the date of submission of the securities report (June 29, 2021) and does not cover all of the risks that the Group faces.